17) Which of the following statements regarding bonds and their terms is FALSE?
A) Zero-coupon bonds are also called pure discount bonds.
B) The internal rate of return (IRR) of an investment opportunity is the discount rate at
which the net present value (NPV) of the investment opportunity is equal to zero.
C) The yield to maturity for a zero-coupon bond is the return you will earn as an investor
from holding the bond to maturity and receiving the promised face value payment.
D) When prices are quoted in the bond market, they are conventionally quoted in
increments of $1,000.
AACSB Objective: Analytic Skills
Author: JN
Question Status: Previous Edition
18) Consider a zero-coupon bond with $100 face value and 15 years to maturity. If the YTM
is 7.4%, this bond will trade at a price closest to ________.
A) $41.13
B) $34.27
C) $47.98
D) $54.83
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
11
19) Consider a zero-coupon bond with a $1000 face value and 10 years left until maturity. If
the YTM of this bond is 10.2%, then the price of this bond is closest to ________.
A) $1000
B) $454.32
C) $530.04
D) $379
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
20) Consider a zero-coupon bond with a $1000 face value and 15 years left until maturity. If
the bond is currently trading for $431, then the yield to maturity on this bond is closest to
________.
A) 2.89%
B) 56.90%
C) 43.10%
D) 5.77%
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
21) Under what situation can a zero-coupon bond be selling at a premium?
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
22) Under what situation can a zero-coupon bond be selling at par to its face value?
Dif: 1 Var: 1
AACSB Objective: Analytic Skills
Author: SS
Question Status: Revised
23) How are the cash lows of a zero-coupon bond diferent from those of a coupon bond?
AACSB Objective: Analytic Skills
Author: SS
Question Status: Revised
6.3 Coupon Bonds
1) Treasury bonds have original maturities from one to ten years, while Treasury notes
have original maturities of more than ten years.
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
2) Bond traders generally quote bond yields rather than bond prices, since yield to maturity
depends on the face value of the bond.
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
13
3) What is the yield to maturity of a(n) eight-year, $5000 bond with a 4.4% coupon rate and
semiannual coupons if this bond is currently trading for a price of $4723.70?
A) 6.31%
B) 5.26%
C) 7.36%
D) 2.63%
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
4) What is the yield to maturity of a ten-year, $10,000 bond with a 5.4% coupon rate and
semiannual coupons if this bond is currently trading for a price of $9207.93?
A) 7.79%
B) 9.08%
C) 6.49%
D) 3.24%
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
5) A bond has ive years to maturity, a $1000 face value, and a 5.5% coupon rate with
annual coupons. What is its yield to maturity if it is currently trading at $846.11?
A) 11.41%
B) 13.31%
C) 7.61%
D) 9.51%
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
14
6) What must be the price of a $10,000 bond with a 6.1% coupon rate, semiannual coupons,
and ive years to maturity if it has a yield to maturity of 10% APR?
A) $8494.26
B) $10,193.11
C) $11,891.97
D) $6795.41
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
7) What must be the price of a $1000 bond with a 5.8% coupon rate, annual coupons, and
20 years to maturity if YTM is 7.8% APR?
A) $960.82
B) 1120.95
C) $800.68
D) $640.54
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
8) A $1000 bond with a coupon rate of 6.2% paid semiannually has eight years to maturity
and a yield to maturity of 8.3%. If interest rates rise and the yield to maturity increases to
8.6%, what will happen to the price of the bond?
A) The price of the bond will fall by $18.93.
B) The price of the bond will fall by $15.78.
C) The price of the bond will rise by $15.78.
D) The price of the bond will not change.
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
9) A $5000 bond with a coupon rate of 5.7% paid semiannually has ten years to maturity
and a yield to maturity of 6.4%. If interest rates fall and the yield to maturity decreases by
0.8%, what will happen to the price of the bond?
A) The price of the bond will fall by $293.50.
B) The price of the bond will fall by $352.20.
C) The price of the bond will rise by $410.90.
D) The price of the bond will rise by $293.50.
15
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
10) What is the coupon rate of an eight-year, $10,000 bond with semiannual coupons and a
price of $9006.6568, if it has a yield to maturity of 6.5%?
A) 4.888%
B) 5.87%
C) 6.84%
D) 3.91%
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
16
Use the information to answer the question(s) below.
11) Shown above is information from FINRA regarding one of Caterpillar Financial
Services’ bonds. How much would the holder of such a bond earn each coupon payment for
each $100 in face value if coupons are paid annually?
A) $1.38
B) $3.95
C) $4.00
D) $4.36
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
17
Use the information for the question(s) below.
12) Shown above is information from FINRA regarding one of Bank of America’s bonds.
How much would the holder of such a bond earn each coupon payment for each $100 in
face value if coupons are paid semiannually?
A) $1.49
B) $2.15
C) $2.32
D) $4.30
AACSB Objective: Analytic Skills
Author: DS
Question Status: Revised
13) The Sisyphean Company has a bond outstanding with a face value of $5000 that
matures in 10 years. The bond certiicate indicates that the stated coupon rate for this
bond is 8.9% and that the coupon payments are to be made semiannually. How much will
each semiannual coupon payment be?
A) $445.0
B) $222.5
C) $667.5
D) $890.0
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
18
14) The Sisyphean Company has a bond outstanding with a face value of $1000 that
reaches maturity in 10 years. The bond certiicate indicates that the stated coupon rate for
this bond is 8.2% and that the coupon payments are to be made semiannually.
Assuming the appropriate YTM on the Sisyphean bond is 7.3%, then the price that this
bond trades for will be closest to ________.
A) $1063
B) $850
C) $1276
D) $1488
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
15) The Sisyphean Company has a bond outstanding with a face value of $1000 that
reaches maturity in 5 years. The bond certiicate indicates that the stated coupon rate for
this bond is 10.0% and that the coupon payments are to be made semiannually.
Assuming the appropriate YTM on the Sisyphean bond is 7.5%, then this bond will trade at
________.
A) par
B) a discount
C) a premium
D) none of the above
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
19
16) The Sisyphean Company has a bond outstanding with a face value of $1000 that
reaches maturity in 10 years. The bond certiicate indicates that the stated coupon rate for
this bond is 8.0% and that the coupon payments are to be made semiannually.
Assuming the appropriate YTM on the Sisyphean bond is 11.1%, then the price that this
bond trades for will be closest to ________.
A) $652
B) $816
C) $979
D) $1142
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
17) The Sisyphean Company has a bond outstanding with a face value of $1000 that
reaches maturity in 5 years. The bond certiicate indicates that the stated coupon rate for
this bond is 8.1% and that the coupon payments are to be made semiannually.
Assuming the appropriate YTM on the Sisyphean bond is 10.6%, then this bond will trade
at ________.
A) a premium
B) a discount
C) par
D) none of the above
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
20